Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104347
Authors: 
Winter, Joachim K.
Schlafmann, Kathrin
Rodepeter, Ralf
Year of Publication: 
2011
Series/Report no.: 
Munich Discussion Paper 2011-16
Abstract: 
We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the optimization problem. Our simulations suggest that utility losses induced by following simple decision rules are relatively low. Moreover, the two main saving motives re ected by the canonical life-cycle model { long-run consumption smoothing and short-run insurance against income shocks { can be addressed quite well by saving rules that do not require computationally demanding tasks such as backward induction.
Subjects: 
saving
life-cycle models
bounded rationality
rules of thumb
JEL: 
D91
E21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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